Consider the following information on Stocks I and II: |
RATE OF RETURN IF STATE OCCURS | |||
STATE OF ECONOMY |
PROBABILITY OF STATE OF ECONOMY |
STOCK I | STOCK II |
Recession | 0.06 | -0.35 | -0.25 |
Normal | 0.23 | 0.29 | 0.23 |
Irrational exuberance | 0.71 | 0.39 | 0.29 |
The market risk premium is 12 percent, and the risk-free rate is 5.4 percent. |
For standard deviations: (Do not include the percent signs (%). Round your answers to 2 decimal places. (e.g., 32.16)) |
For betas: (Round your answers to 2 decimal places. (e.g., 32.16)) |
The standard deviation on Stock I's expected return is ___ percent, and the Stock I beta is ___. The standard deviation on Stock II's expected return is ___ percent, and the Stock II beta is ___. Therefore, based on the stocks' systematic risk/beta, Stock ___ is "riskier". |
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